Eisenhower Communications is trying to estimate the first-year net operating cas

Question

Eisenhower Communications is trying to estimate the first-year net operating cash flow (at Year 1) for a proposed project. The financial staff has collected the following information on the project: Sales revenues $20 million Operating costs (excluding depreciation) 14 million Depreciation 4 million Interest expense 4 million The company has a 40% tax rate, and its WACC is 13%. Write out your answers completely. For example, 13 million should be entered as 13,000,000. What is the project's operating cash flow for the first year (t = 1)? Round your answer to the nearest cent. $ If this project would cannibalize other projects by $2 million of cash flow before taxes per year, how would this change your answer to part a? Round your answer to the nearest cent. The firm's OCF would now be $ Ignore Part b. If the tax rate dropped to 35%, how would that change your answer to part a? Round your answer to the nearest cent. The firm's operating cash flow would by $

Explanation / Answer

Sales 20
Operating Cost -14
Depriciation -4
Interest -4
Loss before tax -2
Tax @40% - Gain 0.8
Loss After tax -1.2
Add back: Depri 4
Net cashFlow 2.8
Since project has cashflows lower then 10M, therefore other 10M cashflow will not be realized.

If Tax @ 30%
Loss before tax -2
Tax @30% 0.6
Loss After tax -1.4
Add back: Depri 4
Net cashFlow 2.6

I'm pretty sure , above solution is perfect.
Welcom any comments

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.